As Argentina Strides Ahead, Will Its Neighbors Follow?

A year ago, the idea of Argentina as a success story was laughable. Hyperinflation was raging, army offi cers were plotting another coup, and the First Family's feuds, culminating with the First Lady's ouster from the presidential palace, were outdoing the soaps. But now, President Carlos Saul Menem is looking very much a winner. He has beaten down inflation to a 20% annual rate, from 300% in the year that ended Mar. 31. And Argentine voters showed their approval of his free-market reforms by voting heavily for Menem's Peronist Party in Sept. 8 provincial elections. "He has got a broad consensus for change," says Manuel Mora y Araujo, a Buenos Aires pollster and political analyst.

Menem could still stumble: For one thing, he has to renegotiate Argentina's $65 billion foreign debt. But a U. S. banker in Buenos Aires, echoing a widely held view, sees "tremendous growth here over the next 20 years." And Argentina's example is likely to strengthen free-market advocates in other countries, especially neighboring Brazil.

Right now, Menem is moving quickly to use his fresh political mandate. His government has announced the dismissal of 10,000 state bank workers and is accelerating plans to sell YPF, the state oil company. When 1,800 oil workers struck in protest, Menem fired them, agreeing later to hire some back.

LITTLE TIME. Menem is also chopping the army, a once-powerful and often disruptive force, downto size. Besides thinning its ranks, he is shrinking thegenerals' economic base by selling off military-run industries. And to weaken the political hammerlock of entrenched business monopolies, he is enlisting Argentina in free-trade pacts with its neighbors. "This is a frontal, global attack to remake the entire Argentine system," says Carlos Daniel Tramutola, a business consultant and former steel executive. "He doesn't have time to take on one sector at a time."In short, Menem is pushing Argentina toward modern democracy after its slide in recent decades toward Third World-style instability, economic stagnation, and deepening social ills. "There is only one world that counts, the First World," Menem says. He has benefited from the examples of Mexico and Chile. But Chile's reforms were launched by a dictator and Mexico's by a virtual one-party regime, not in a rambunctious democracy such as Argentina's. In democratic Venezuela, President Carlos Andres Perez, a recent free-market convert, is pursuing more limited reforms.

WEAKENED BOSSES. For Menem, the turning point in the anti-inflation battle was Economy Minister Domingo Cavallo's decision to tie the austral to the dollar last April. The central bank is now barred from printing australs that aren't backed by hard currency or gold. But next year, to trim a still-bloated budget, Menem will have to lay off an additional 50,000 public workers. And on Sept. 20, Menem sent Cavallo to the U. S. for debt talks, aiming for a 30% write-off similar to Mexico's 1989 deal.

Underlying Menem's reforms is his success in reshaping Peronism--originally a populist, authoritarian movement that was often a destabilizing political force. By attracting a wide electoral following with his reforms, Menem has reduced the clout of Peronist union bosses who controlled the party's former main base, labor. What is emerging now is an Argentine political system dominated by middle-of-the-road parties: the Peronists on the center-right and the Radical Civic Union, which ruled from 1983 to 1989, on the center-left. Now, Menem is showing that a democratic system can mobilize broad support for the difficult transition to a free market.

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